The market for masks is competitive market and is in long-run equilibrium. Describe what happens in...
The market for masks is competitive market and is in long-run equilibrium. Describe what happens in this market as COVID-19 and people demand for masks and the process that eventually leads to a new long-run.
Homework Answers
Before COVID, market of mask was in long run equilibrium. Sudden rise in demand of mask due to COVID-19 will shift demand curve to its right from AD to AD1 while keep supply as same because it is not possible to increase supply overnight. It will result in rise in price from P to P1 while output rise from Y to Y1.
In long run, producers will increase supply of mask to complete demand of mask which increased in short run. It will shift aggregate supply of mask in long run which will reduce price to its initial level of P while raise output level further.
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